India-China trade imbalance grows as India bans export of iron ore
August 16, 2010

India’s balance of trade with China has been brutally hit this month, as exports of Indian iron ore to China fell by more than half.

Late last month, the South Indian state of Karnataka banned iron ore exports and the western state of Goa ceased exports of iron ore due to the monsoon. The ban on iron ore which is a highly traded commodity from India to China has skewed the balance of trade heavily in China’s favour and has Indian officials worried about the trade imbalance again. India is the world’s third largest supplier of the steel making raw material, with most of its exports landing in China that houses the world’s largest steel industry.

As a consequence of the export ban, not only are domestic Indian iron ore manufacturers suffering due to a lax market, but international prices have risen almost 4 percent leading China to seek newer markets such as Australia and Brazil to source from.

Analysts looking at this long-term are also worried that the uneven trade could mean that India will look to impose trade barriers on made in China commodities in order to rebalance trade and protect domestic manufacturers. If that happens, it will be difficult for the two countries to meet their US$60 billion bilateral trade target by this year-end and Indian infrastructure, IT, telecom and engineering industries that rely on cheaper Chinese equipment could get affected.

The politically motivated ban on Indian iron ore in Karnataka is due to corruption charges levied by a political party on its opponent. As a result of which, 10 ports have banned iron ore exports since the past three weeks. Karnataka which is endowed with approximately 9.03 billion tonnes, 40 percent of India’s estimated total haematite and magnetic ore resources produced 45.94 million tonnes of iron ore in the year to March 2009, when India produced 215 million tonnes of the material and exported 106 million tonnes, a majority of which was exported to China.

In China, a trader said volumes remained low with mostly small steel mills replenishing their stocks for immediate needs after the lull they saw in the last couple of months. Output of crude steel from China, saw a second straight monthly fall in July as plants scaled back production due to a rise in prices.


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